How Obama would change bankruptcy law for mortgages

In all the hoopla yesterday over President Barack Obama’s plan to provide up to $75 billion in mortgage aid, there wasn’t a lot of attention to a line in his strategic plan about giving bankruptcy judges the power to modify home loans, including a reduction in the balance owed to current market value of the property. Such a change requires a vote by Congress. Sounds Good but lets see how that goes once congress gets a hold of it..

National Mortgage News has a few more details:

President Barack Obama is endorsing changes to the bankruptcy code that will allow judges to modify mortgages that were made in the “past few years” and don’t exceed the $417,000 conforming loan limit, according to the president’s foreclosure prevention plan. “This provision will apply only to existing mortgages under the Fannie Mae and Freddie Mac conforming loan limits, so that millionaire homes don’t clog the bankruptcy courts,” the summary says. The bankruptcy legislation being proposed by the president is designed to help families that have “run out of other options.” But they must certify that they tried to get a loan modification and worked with a servicer before filing for bankruptcy. The legislation also provides authority for the Federal Housing Administration and the Department of Veterans Affairs to pay partial claims in the event of a bankruptcy or loan modification “so the holders of loans guaranteed by FHA and VA are not disadvantaged.”
February 19th, 2009, 8:07 am . posted by Mathew Padilla, Reporter